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First Progress Report on Economic and Social Cohesion

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1) OBJECTIVE

To update the analysis of economic and social cohesion presented in the second cohesion report published in January 2001 and outline the state of the debate on future cohesion policy for the period after 2006.

2) ACT

Commission Communication of 30 January 2002 - First progress report on economic and social cohesion [COM(2002) 46 final - Not published in the Official Journal].

3) SUMMARY

Every three years, the Commission submits a "report [...] on the progress made towards achieving economic and social cohesion and on the manner in which the various means [...] have contributed to it" (Article 159 of the Treaty). Published in January 2001, the second report on economic and social cohesion pursues two objectives: to analyse the development of economic and social cohesion in a European Union with 27 members and open the debate on the future of Community cohesion policy.

In December 2001, the Laeken European Council concluded that, if the current rate of progress of the negotiations was maintained, all the applicant countries except Bulgaria and Romania could join the Union soon. This means that by 2004 the European Union could have 25 members.

The purpose of this progress report on economic and social cohesion is therefore:

to update the analysis of economic and social cohesion presented in the second cohesion report published in January 2001, including for the first time, an analysis of disparities in a Europe of 25;

to outline the state of the debate on future cohesion policy for the period after 2006.

SITUATION AND TRENDS

The progress report provides data on regional GDP in 1999 and on employment and unemployment in 2000. The updated analysis of growth, employment and factors promoting sustainable development confirms the main trends set out in the second report on economic and social cohesion:

"Although disparities between the present Member States still persist, they have diminished since 1998."The main change concerns the countries receiving assistance from the Cohesion Fund. Spain, Greece and Portugal have made up a third of their development gap over 10 years. The Irish GDP rose from 64 % of the Community average in 1988 to 119 % in 2000.

"The reduction in regional disparities within the Fifteen continues, although to a lesser extent than at national level."These disparities have grown within some Member States. The process of catching up will therefore be a long haul.

"Enlargement will be accompanied by a major fall in average per capita GDP and a widening of regional disparities on a scale without precedent in any previous enlargement."The fall in GDP in a Europe of 25 will be 13 %. Nevertheless, that fall and the widening of disparities will be less pronounced than the previous assumptions for a Union made up of 27 Member States.

"In a Union of 27 Member States there would be three groups of countries": A) nine applicant countries with a standard of living 41 % of the Community average; B) three applicant countries (Cyprus, Slovakia and the Czech Republic) and three cohesion countries (Spain, Greece and Portugal) with a GDP of 87 % of the Community average; C) the other current Member States, who would be well above that future average.

Economic and social cohesion in the existing Union and in the applicant countries

For the period 1995-99, it is now possible to examine per capita GDP at regional level. The analysis in the progress report highlights the following features:

At 3.2 %, the rate of growth in the twelve applicant countries was higher than in the existing Union (2.4 %) over that period.

"Three million jobs were created in the European Union in 2000."Thus employment in the Europe of Fifteen rose by 1.8 % in 2000. Unemployment fell from 9.1 % to 8.4 %, the largest fall in almost ten years. This reduction also benefited the most disadvantaged categories such as the long-term unemployed, young persons and women.Nevertheless, "major disparities continue to exist, particularly between the regions": in the regions least affected by unemployment (accounting for 10 % of the total population of the Union), the rate is 2.7 % as against 21.9 % in the regions most affected (also accounting for 10 % of the total population of the Fifteen).Over the same period, "employment fell by 1.4 % in the applicant countries", i.e. 600 000 jobs were lost. This trend could become more pronounced in future with the restructuring currently underway in some sectors such as agriculture and manufacturing. In Central and Eastern Europe, employment in the tertiary sector - finance, business and services - is only three quarters of the EU average.In those countries long-term and youth unemployment is high while women are less affected.

"The phenomenon of demographic concentration is becoming more pronounced."The regions whose population has the highest annual growth rate are already densely populated. Similarly, the regions with a falling population are the regions with the lowest population density.

"The general trend of a slow-down in population growth and an ageing population are more varied at regional level."Though there has been a general increase in the level of education, wide regional disparities persist.The human factor will be decisive in enabling the least developed regions to catch up. Thus, education and training are two vital elements in ensuring that all Europeans are in a position to gain the knowledge and the skills necessary to live and work in the information society. To achieve this, the regions should also be given incentives and help to improve their technical infrastructure and increase their capacity for innovation and research.The population with the lowest level of education remains concentrated in southern Europe (Portugal, Spain, Italy and Greece), but also in Ireland and in some areas of northern France and Belgium. The highest levels of education are to be found in the Nordic countries, the United Kingdom, Germany and the Benelux, and in Paris, Madrid and the Basque Country.The level of Internet access (the percentage of households having access to the Internet from home) tends to be less than 30 % in the cohesion countries, while in the Nordic countries and the Netherlands it is around 60 %.

The updated information confirms the very high concentration of activities in a triangle formed by North Yorkshire (United Kingdom), Franche-Comté (France) and Hamburg (Germany).

The socio-economic role of the border regions is increasing and will be bigger after enlargement. Mountain, coastal and maritime areas, islands and archipelagos will cover a large part of the enlarged Union. The special needs of these geographic areas are the focus of studies on the natural handicaps that they face. Two of these are already in progress: one on the island regions (including the outermost regions) and one on mountain areas (including Arctic areas). The main aim of these studies is to establish a database for such areas with statistical information on sustainable development (based on the collection of socio-economic, environmental, demographic and other indicators) at all administrative levels in order to carry out an objective analysis of the situation in these regions.

A Union of 25 Member States

The progress report makes an initial assessment of economic and social cohesion in a Union of 25 Member States:

Using the current criterion for eligibility for Objective 1 of the Structural Funds, the regions whose per capita GDP is less than 75 % of the average in a Community of 25 would have a population of 115 million people, 25 % of the total population.

"The regions considered less developed under the present criterion will be more concentrated in the applicant countries."Of these 115 million inhabitants, 40 % would live in the 15 current Member States and 60 % in the applicant countries. There would therefore have to be a shift eastwards of future regional policy.

The regions currently eligible under Objective 1 which, after enlargement, would be above the threshold of 75 % of average per capita GDP have a population of 37 million.About two thirds of the population of these regions, i.e. 25 million, would automatically cease to be eligible because of the statistical fall in the Community GDP average by about 13 %.The remaining third would in any case be above the 75 % threshold, irrespective of enlargement. This phenomenon demonstrates the genuine convergence of some Community regions.

ASSESSMENT OF DISCUSSIONS ON THE FUTURE OF COHESION POLICY

The European Cohesion Forum

The European Cohesion Forum, held on 21 and 22 May 2001, was attended by over 1 800 political leaders from the Europe of Fifteen and the applicant countries, who had the opportunity to express their opinion on the future of cohesion policy.

There is a broad consensus on the need for greater cohesion. Cohesion policy is the way the European Union expresses solidarity and bears witness to the existence in the Community of a special model of development. Regional disparities will increase as a result of enlargement, and it will be essential to help those regions in most need. If it is not to lose credibility, cohesion funding must be maintained at its current level of 0.45 % of the EU's GDP as decided at the Berlin European Council. Cohesion policy is also beneficial because it has a knock-on effect, helping not only the regions receiving financial support but also their partners in the internal market.

The main conclusions of the Forum are as follows:

"Cohesion should not be confined to structural policy."Other Community policies, particularly the Common Agricultural Policy (CAP) and rural development, environment and transport policy, must make a more effective contribution towards this goal.

"The Union needs a cohesion policy which addresses three types of region and structural problems": (1) regions whose development is lagging very far behind, 60 % of which are in the applicant countries; (2) regions of the Fifteen which have not completed the process of real convergence (particularly in the three cohesion countries); (3) regions facing serious structural problems, such as some urban areas, areas affected by industrial conversion, rural areas dependent on agriculture and/or fishing, and areas suffering from natural or demographic handicaps (islands, mountain areas, outermost regions, etc.).To avoid funding being spread too thinly, cohesion policy should concentrate on those measures where the Community can add real value, resulting in stronger links between financial allocations, the value added by the measures and the anticipated results.

"The regions and local authorities would like to see real partnerships established with the Community institutions."There is a need for greater decentralisation and clarification of roles in order to ensure that partnership is not restricted to the national level only. In the context of the White Paper on Governance, the regions would like to see full recognition for the action they take on the ground to promote economic and social cohesion. Thus, they would like to play a greater role in defining policies directly affecting them. In the context of subsidiarity, the Commission is therefore encouraged to more clearly define the division of responsibilities between the various administrative levels.

The discussions at institutional level

An informal meeting of regional policy ministers was held under the Belgian Presidency in Namur on 13 and 14 July 2001 to discuss the, "challenge of economic, social and territorial cohesion in the context of enlargement". There was broad agreement on the need to continue with a strong cohesion policy and, in an enlarged Union, priority would be given to regions whose development is lagging behind. Assistance would be concentrated on those measures where Community added value was greatest and the involvement of the other Community policies would be sought.

A number of Member States took part in the debate and submitted positions on the future of cohesion policy. For example, the Spanish government sent a memorandum in June 2001 on the consequences of enlargement for regional policy, in particular in the cohesion countries. Lithuania, Italy, the Netherlands and Germany also sent in documents and studies on this subject.

The Economic and Social Committee delivered an opinion [OJ C 193, 10.7.2001] on the second report on economic and social cohesion. It favours raising the current threshold of 75 % for eligibility under Objective 1 of the Structural Funds (regions whose development is lagging behind). In its opinion on the same report, the Committee of the Regions concludes that the regional dimension should be strengthened and that the current Objective 1 regions, which have not completed the process of convergence after enlargement, should continue to be eligible. It also said that a sudden stop to structural aid should be avoided by expanding transitional support. The European Parliament resolution of 7 February 2002 stresses the need to reduce regional development disparities. At a technical level, it regrets the fact that no penalty can be imposed when Member States infringe the additionality principle. It believes that the Cohesion Fund should continue, but that it should become an instrument of structural policy subject to the rules of the Structural Funds. It would also like to see operational mechanisms made available to promote coordination between the Structural Funds and the EDF, Phare and Meda Programmes.

Throughout 2002, the Commission is organising seminars on the 10 questions relating to the future of regional policy after 2006. Aimed at identifying measures with a high value added, the discussions focus on the following subjects:

There is unanimous agreement that regional disparities will grow after enlargement, hence the importance of action for the least developed regions. "The question is therefore how to define regions whose development is lagging behind and lay down the limits of and rules for Community support."The report reviews the four possible options for determining the eligibility of regions whose development is lagging behind: 1) application of the present threshold of 75 % irrespective of the number of countries joining the Union. This option would eliminate a large number of regions in EU 15; 2) the same approach, but all regions above this threshold currently eligible under Objective 1 would receive temporary transitional support; 3) setting a threshold of per capita GDP higher than 75 % of the average, at a level which would eliminate the automatic effect of excluding those regions in the EU 15 simply because of the reduction in the average per capita GDP in an enlarged Union; 4) setting two eligibility thresholds, one for the regions in EU 15 and one for the applicant countries, and leading de facto to the creation of two categories of lagging region.

"A regional or national approach?"Some studies argued for a national rather than a regional approach to both the eligibility of the applicant countries for Objective 1 and the economic development strategy to be followed in the Member States, the distribution of Community funds and the definition of the various political and administrative structures. This approach gives the Member States greater freedom, although it would require eligibility criteria to be defined which seem to be difficult to reconcile with the Treaty and Community secondary legislation. The regional approach is ambitious in that it is geared to greater autonomy and flexibility at local level.

"The second cohesion report did not cover the financial implications of enlargement for cohesion policy."It simply refers to the figure of 0.45 % of GDP allocated to cohesion policy from 2000 to 2006. The Commission sees this rate as a minimum below which the credibility of future cohesion policy would be called into question.

"Simplification of the transfer and management mechanisms for the Structural Funds must continue to be a major objective of future cohesion policy."The Commission is committed to further measures in this area. It announced that the basic texts for future cohesion policy would be adopted as quickly as possible so that assistance can begin to flow in the regions as soon as the next programming period begins in 2007.

"The other Community policies must take greater account of the regional dimension."In a context of balanced regional development, they must not focus solely on the most prosperous areas of the European Union.

The Commission is aware of the challenge that enlargement poses for regional policy, and its proposals on cohesion policy after 2006 will be drawn up to take account of the suggestions developed in this major consultation exercise. It will incorporate them into the third cohesion report.